3-Regime symmetric STAR modeling and exchange rate reversion

The breakdown of the Bretton Woods system and the adoption of generalized oating exchange rates ushered in a new era of exchange rate volatility and uncer- tainty. This increased volatility lead economists to search for economic models able to describe observed exchange rate behavior. In the present paper we propose more general STAR transition functions which encompass both threshold nonlinearity and asymmetric e¤ects. Our framework allows for a gradual adjustment from one regime to another, and considers threshold e¤ects by encompassing other existing models, such as TAR models. We apply our methodology to three di¤erent exchange rate data-sets, one for developing countries, and o¢ cial nominal exchange rates, the sec- ond emerging market economies using black market exchange rates and the third for OECD economies.

How do improvements in labour productivity in the Scottish economy affect the UK position on the Environmental Kuznets Curve?

The research reported here is an output of Karen Turner’s ESRC Climate Change Leadership Fellow project (Grant reference RES-066-27-0029). However, this research builds on previous work funded by the ESRC on modelling the economic and environmental impacts of technological improvement (Grant reference: RES-061-25-0010) and by the EPSRC through the SuperGen Marine Energy Research Consortium on accounting for and modeling environmental indicators (Grant reference: EP/E040136/1).

Technical Appendix-3-Regime asymmetric STAR modeling and exchange rate reversion

The breakdown of the Bretton Woods system and the adoption of generalized oating exchange rates ushered in a new era of exchange rate volatility and uncer- tainty. This increased volatility lead economists to search for economic models able to describe observed exchange rate behavior. The present is a technical Appendix to Cerrato et al. (2009) and presents detailed simulations of the proposed methodology and additional empirical results.

Modeling U.S. Inflation Dynamics: A Bayesian Nonparametric Approach

This paper uses an infinite hidden Markov model (IIHMM) to analyze U.S. inflation dynamics with a particular focus on the persistence of inflation. The IHMM is a Bayesian nonparametric approach to modeling structural breaks. It allows for an unknown number of breakpoints and is a flexible and attractive alternative to existing methods. We found a clear structural break during the recent financial crisis. Prior to that, inflation persistence was high and fairly constant.

Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction, with reference to Spain

In this paper we examine whether variations in the level of public capital across Spain‟s Provinces affected productivity levels over the period 1996-2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy („industry‟) which includes the level of composite services derived from „service‟ firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.

Reference distorted prices

I show that when consumers (mis)perceive prices relative to reference prices, budgets turn out to be soft, prices tend to be lower and the average quality of goods sold decreases. These observations provide explanations for decentralized purchase decisions, for people being happy with a purchase even when they have paid their evaluation, and for why trade might affect high quality local firms 'unfairly'.

Domestic Violence and Football in Glasgow: Are Reference Points Relevant?

Much research suggests that sporting events can trigger domestic violence with recent evidence suggesting that pre-match expectations (which can be interpreted as reference points) play an especially important role in this relationship. In particular, unexpectedly disappointing results have been associated with large increases in domestic violence. This paper contributes to this literature using a new data set containing every domestic violence incident in Glasgow over a period of more than eight years. We find that Old Firm matches, where Glasgow rivals Celtic and Rangers play, are associated with large increases in domestic violence (regardless of the timing or the outcome of the match). Non-Old Firm matches tend to have little impact on domestic violence. Furthermore, we fi nd little evidence for the importance of reference points. Matches with disappointing outcomes, relative to pre-match expectations, are found to be associated with unusual increases in domestic violence only in a very limited set of matches.

Domestic Violence and Football in Glasgow: Are Reference Points Relevant?

Much research suggests that sporting events can trigger domestic violence with recent evidence suggesting that pre-match expectations (which can be interpreted as reference points) play an especially important role in this relationship. In particular, unexpectedly disappointing results have been associated with large increases in domestic violence. This paper contributes to this literature using a new data set containing every domestic violence incident in Glasgow over a period of more than eight years. We find that Old Firm matches, where Glasgow rivals Celtic and Rangers play, are associated with large increases in domestic violence (regardless of the timing or the outcome of the match). Non-Old Firm matches tend to have little impact on domestic violence. Furthermore, we find little evidence for the importance of reference points. Matches with disappointing outcomes, relative to pre-match expectations, are found to be associated with unusual increases in domestic violence only in a very limited set of matches.

Modeling Dependence Structure and Forecasting Portfolio Value-at-Risk with Dynamic Copulas

We study the asymmetric and dynamic dependence between financial assets and demonstrate, from the perspective of risk management, the economic significance of dynamic copula models. First, we construct stock and currency portfolios sorted on different characteristics (ex ante beta, coskewness, cokurtosis and order flows), and find substantial evidence of dynamic evolution between the high beta (respectively, coskewness, cokurtosis and order flow) portfolios and the low beta (coskewness, cokurtosis and order flow) portfolios. Second, using three different dependence measures, we show the presence of asymmetric dependence between these characteristic-sorted portfolios. Third, we use a dynamic copula framework based on Creal et al. (2013) and Patton (2012) to forecast the portfolio Value-at-Risk of long-short (high minus low) equity and FX portfolios. We use several widely used univariate and multivariate VaR models for the purpose of comparison. Backtesting our methodology, we find that the asymmetric dynamic copula models provide more accurate forecasts, in general, and, in particular, perform much better during the recent financial crises, indicating the economic significance of incorporating dynamic and asymmetric dependence in risk management.

Modeling Dependence Structure and Forecasting Market Risk with Dynamic Asymmetric Copula

We investigate the dynamic and asymmetric dependence structure between equity portfolios from the US and UK. We demonstrate the statistical significance of dynamic asymmetric copula models in modelling and forecasting market risk. First, we construct “high-minus-low" equity portfolios sorted on beta, coskewness, and cokurtosis. We find substantial evidence of dynamic and asymmetric dependence between characteristic-sorted portfolios. Second, we consider a dynamic asymmetric copula model by combining the generalized hyperbolic skewed t copula with the generalized autoregressive score (GAS) model to capture both the multivariate non-normality and the dynamic and asymmetric dependence between equity portfolios. We demonstrate its usefulness by evaluating the forecasting performance of Value-at-Risk and Expected Shortfall for the high-minus-low portfolios. From back-testing, e find consistent and robust evidence that our dynamic asymmetric copula model provides the most accurate forecasts, indicating the importance of incorporating the dynamic and asymmetric dependence structure in risk management.